a

GAO

United States General Accounting Office

Report to the Chairman and Ranking 

Minority Member, Subcommittee on 

Forests and Forest Health, Committee on 

Resources, House of Representatives

May 2003 FOREST SERVICE

Year-end Financial 

Reporting 

Significantly 

Improved, but Certain 

Underlying Problems 

Remain

GAO-03-538
The Forest Service has made significant progress toward achieving financial 

accountability, receiving its first “clean” or unqualified audit opinion on its 

financial statements for fiscal year 2002. This was attained because top 

management dedicated considerable resources to address accounting and 

reporting deficiencies. We consider this a positive step; however, sustaining 

this outcome and achieving financial accountability will require more than 

obtaining year-end numbers for financial statement purposes. 

The Forest Service continues to face several major challenges, many of 

which resulted in unfavorable audit opinions in the past. Specifically, the 

Forest Service’s fiscal year 2002 financial statement audit report disclosed 

material internal control weaknesses related to its two major asset 

accounts—fund balance with the U.S. Department of the Treasury, and 

property, plant, and equipment—as well as for certain estimated liabilities, 

payroll processes, computer security controls, and software application 

controls related to its procurement and property systems. Further, the 

Forest Service has not addressed the challenges of replacing or enhancing 

legacy feeder systems and implementing a financial management field 

operation that supports efficient and effective day-to-day financial 

operations and routinely produces reliable and timely financial information. 

The Forest Service has corrective actions underway or planned that are 

intended to resolve these problems, including a financial management 

strategic plan. If this plan is to serve as a “road map” toward financial 

accountability, the Forest Service needs to ensure that its plan is 

comprehensive, integrating and prioritizing the various corrective action 

initiatives underway and planned. 

History of Forest Service Audit Reports 

Fiscal 

year Opinion 

Material internal 

control weaknesses 

Noncompliance with 

laws and regulations 

1991 Adverse X X 

1992 Adverse X X 

1993 Qualified X X 

1994 Qualified X X 

1995 Adverse X X 

1996 No Audita No audit No audit 

1997 Disclaimer X X 

1998 Disclaimer X X 

1999 Disclaimer X X 

2000 Disclaimer X X 

2001 Disclaimer X X 

2002 Unqualified X X 

Source: USDA Inspector General and KPMG audit reports. 

a

The Forest Service chose not to prepare financial statements in an effort to focus on 

correcting accounting and reporting weaknesses. 

FOREST SERVICE 

Year-end Financial Reporting 

Significantly Improved, but Certain 

Underlying Problems Remain 

www.gao.gov/cgi-bin/getrpt?GAO-03-538. 

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact McCoy 

Williams at (202) 512-6906 or 

williamsm1@gao.gov. 

Highlights of GAO-03-538, a report to the 

Chairman and Ranking Minority Member, 

Subcommittee on Forests and Forest 

Health, Committee on Resources, House 

of Representatives. 

May 2003

Since 1996, we have periodically 

reported on Forest Service financial 

management problems that we, the 

U.S. Department of Agriculture’s 

Office of the Inspector General, and 

other independent auditors have 

identified. We have designated the 

Forest Service financial 

management as a high-risk area 

since 1999. Because of these 

longstanding financial management 

deficiencies, the Subcommittee 

asked GAO to report on the Forest 

Service’s progress in correcting its 

financial management problems and 

on remaining challenges and actions 

underway to address those 

challenges. 

We recommend that the Forest 

Service develop a comprehensive 

financial management strategy that 

• defines financial management 

goals and objectives, 

• specifies corrective actions, 

• identifies target dates and 

resources needed, 

• identifies responsible parties, 

and 

• prioritizes and links 

improvement initiatives, 

including USDA financial 

management systems 

enhancements. 

The Forest Service concurred with 

our recommendations and 

indicated that it is developing a 

strategic plan. 
Page i GAO-03-538 Forest Service

Contents

Letter 1

Results in Brief 2

Background 3

Scope and Methodology 6

The Forest Service Has Made Significant Progress toward Achieving 

Financial Accountability 7

Despite Progress Made, Accountability Challenges Remain 10

An Efficient and Effective Financial Management Organization Is 

Key to Achieving Financial Accountability 16

Corrective Actions Are Underway or Planned to Resolve Remaining 

Problems 18

Conclusion 20

Recommendations for Executive Action 21

Agency Comments and Our Evaluation 22

Appendix

Appendix I: Comments from the Forest Service 23

Tables Table 1: Forest Service History of Audit Opinions 5

Table 2: Forest Service Material Internal Control Weaknesses 13

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Page 1 GAO-03-538 Forest Service

United States General Accounting Office

Washington, D.C. 20548

A

May 1, 2003 Letr

The Honorable Scott McInnis

Chairman

The Honorable Jay Inslee

Ranking Minority Member

Subcommittee on Forests

and Forest Health

Committee on Resources 

House of Representatives 

Since December 1996, we have periodically reported1 on financial 

management problems identified by the U. S. Department of Agriculture’s 

(USDA) Office of the Inspector General (IG) in its annual audits of the 

Forest Service’s financial statements. In prior reports and testimonies, we 

discussed (1) how the lack of accountability raises concerns about the 

Forest Service’s stewardship over billions of dollars of taxpayer money 

appropriated to it, (2) how its autonomous field structure hampers efforts 

to achieve financial accountability, and (3) its progress in correcting its 

financial accounting and reporting deficiencies. This report responds to 

your request that we continue to monitor the Forest Service’s efforts to 

improve its financial management and determine 

• whether the Forest Service has made progress in resolving previously 

reported financial management problems, 

• challenges that the Forest Service faces in achieving financial 

accountability, and 

• actions underway or planned by the Forest Service for resolving 

remaining problems.

1

U.S. General Accounting Office, Financial Management: Forest Service’s Efforts to 

Achieve Accountability, GAO/AIMD-99-68R (Washington, D.C.: Feb. 8, 1999); Forest 

Service: Barriers to Financial Accountability Remain, GAO/AIMD-99-1 (Washington, 

D.C.: Oct. 2, 1998); Forest Service: Status of Progress Toward Financial Accountability, 

GAO/AIMD-98-84 (Washington, D.C.: Feb. 27, 1998); Financial Management: Forest 

Service’s Progress Toward Financial Accountability, GAO/AIMD-97-151R (Washington, 

D.C.: Aug. 29, 1997); and Letter to the Chairman, House Committee on the Budget, 

GAO/AIMD-97-11R (Washington, D.C.: Dec. 20, 1996).
Page 2 GAO-03-538 Forest Service

Results in Brief In fiscal year 2002, the Forest Service made significant progress toward 

achieving financial accountability, receiving its first unqualified or “clean” 

audit opinion on its financial statements. To achieve this milestone, the 

Forest Service’s top management dedicated considerable resources and 

focused staff efforts to address accounting and reporting deficiencies that 

had prevented a favorable opinion in the past. We consider this a positive 

step toward achieving financial accountability. However, sustaining this 

outcome and achieving financial accountability requires more than 

obtaining reliable onetime year-end numbers for financial statement 

purposes. 

The Forest Service still must overcome several major challenges before it 

can routinely produce reliable and timely financial information to 

effectively manage operations, monitor revenue and spending levels, and 

make informed decisions about future funding needs for its programs. The 

fiscal year 2002 financial statement audit report disclosed material internal 

control weaknesses2

 in several areas, including its two major asset 

accounts--fund balance with the U.S. Department of the Treasury 

(Treasury) and property, plant, and equipment--certain estimated liabilities, 

payroll processes, computer security controls, and application software 

controls related to its procurement and personal property systems. The 

audit report also discussed areas in which the Forest Service’s financial 

management systems are not in substantial compliance with Federal 

Financial Management Improvement Act of 1996 (FFMIA)3

 requirements. 

These relate primarily to the above internal control weaknesses. 

2

 A material weakness is a condition in which the design or operation of one or more of the 

internal control components does not reduce to a relatively low level the risk that errors, 

fraud, or noncompliance in amounts material to the financial statements may occur and not 

be detected promptly by employees in the normal course of performing their duties.

3

 P.L. 104-208, title VIII, 110 Stat. 3009-389 (1996). 
Page 3 GAO-03-538 Forest Service

As discussed in our prior reports and testimonies, the agency faces the 

challenge of replacing or enhancing certain antiquated financial subsidiary 

systems–called feeder systems–that transfer data to the Foundation 

Financial Information System (FFIS), its standard accounting system, and

implementing a financial management field organization that supports 

efficient and effective day-to-day financial operations. In 1999, we 

designated Forest Service financial management as high risk on the basis of 

serious financial and accounting weaknesses.4 Again in our January 2003 

report,5 we reiterated our concerns due to the serious deficiencies that 

remain. 

The Forest Service has corrective actions underway or planned that are 

intended to resolve these problems, including a financial management 

strategic plan. If this plan is to serve as a “road map” toward financial 

accountability, the Forest Service needs to make sure its strategic plan is 

comprehensive--integrating and prioritizing the various corrective actions--

and includes detailed steps for implementing these actions. 

The independent auditor hired by the Forest Service made numerous 

recommendations to improve the internal control weaknesses identified 

during its audit of the fiscal year 2002 financial statements. We support 

these recommendations. In addition, we are recommending to the Chief of 

the Forest Service that the Budget and Finance Deputy Chief/Chief 

Financial Officer (CFO) develop a comprehensive financial management 

strategic plan to effectively manage the improvement efforts underway and 

planned. The Forest Service concurred with our recommendations and it 

is developing a strategic plan. 

Background The Forest Service, a component of the USDA is responsible for 

maintaining the health, diversity, and productivity of the nation’s forests 

and grasslands to meet the needs of present and future generations. This 

mission is carried out through the use of several programs, the largest 

being the National Forest System. Through the National Forest System, the 

Forest Service manages about 192 million acres, comprising about 8.5 

4

 U.S. General Accounting Office, High-Risk Series: An Update, GAO/HR-99-1 (Washington, 

D.C.: January 1999).

5

 U.S. General Accounting Office, High-Risk Series: An Update, GAO-03-119 (Washington, 

D.C.: January 2003).
Page 4 GAO-03-538 Forest Service

percent of the total surface area of the United States. On these lands, the 

Forest Service, among other things, supports recreation, sells timber, 

provides rangeland for grazing, and maintains and protects watersheds, 

wilderness, fish, and wildlife. In addition, the Forest Service provides 

financial and program support for state and private forests and undertakes 

research activities. The Forest Service, headed by a chief, conducts its 

activities through 9 regional offices, 6 research offices, 1 state and private 

forestry area office, the Forest Products Laboratory, and the International 

Institute of Tropical Forestry. In addition, the National Forest System has 

155 national forest offices and more than 600 ranger district offices. 

The Chief of the Forest Service manages from the national office, 

headquartered in Washington, D.C., and provides national-level policy and 

direction to the field offices. The Forest Service has approximately 30,000 

employees and a budget of over $5 billion to carry out its mission. The 

Forest Service Budget and Finance Deputy Chief/CFO is responsible for the 

financial accountability of funds appropriated by the Congress for Forest 

Service programs and reports to the Forest Service Chief. 

The Chief Financial Officers Act of 1990 calls for CFO Act agencies, such as 

USDA, to have financial management systems, including internal control, 

that provide complete, reliable, consistent and timely information. The 

Government Management Reform Act of 1994 (GMRA) requires the CFO 

Act agencies to prepare and have audits of annual financial statements. 

FFMIA builds on the foundation laid by these acts by emphasizing the need 

for agencies to have systems that routinely generate timely, accurate, and 

useful information. Specifically, FFMIA requires that the auditor report on 

whether the agencies’ financial management systems substantially comply 

with (1) federal financial management systems requirements, 

(2) applicable federal accounting standards, and (3) the U. S. Government 

Standard General Ledger (SGL) at the transaction level6

 requirements. As 

authorized by GMRA, the Office of Management and Budget is responsible 

for identifying components of the designated CFO Act agencies that are 

required to have audited financial statements. OMB requires that the 

Forest Service, a major component of USDA, have audited financial 

statements. 

6

 The SGL provides a standard chart of accounts and standardized transactions that 

agencies are to use in all their financial systems.
Page 5 GAO-03-538 Forest Service

Since its first financial statement audit for the fiscal year ended September 

30, 1991, the Forest Service has faced numerous serious accounting and 

financial reporting weaknesses that have prevented it from receiving a 

positive audit opinion. These are shown in table 1.

Table 1: Forest Service History of Audit Opinions

Source: GAO Analysis.

Fiscal year Opinion Explanation

1991 Adverse Major inaccuracies in the financial statements.

1992 Adverse Major inaccuracies in the financial statements.

1993 Qualified Pervasive errors in the field-level data supporting 

the land, buildings, equipment, accounts receivable, 

and accounts payable. 1994 Qualified

1995 Adverse Continuing pattern of unfavorable conclusions 

about the Forest Service’s financial statements. 

Several shortcomings in accounting and financial 

data and information systems were identified. 

1996 No Audit Due to the severity of the accounting and reporting 

deficiencies, the Forest Service did not prepare 

financial statements for fiscal year 1996, but chose

instead to focus on resolving these problems.

1997 Disclaimer Unable to reliably track and report on major assets 

worth billions of dollars, including accounts 

receivable, real property, and accounts payable. 

Also errors in records of fund balances with 

Treasury. 

1998 Disclaimer Lack of basic accountability for major assets and 

liabilities; the inability to accurately track the cost of 

programs and activities, and significant reporting

errors in the Forest Service financial statements 

and supporting records.

1999 Disclaimer Unable to determine accuracy of property, plant, 

and equipment and unable to verify fiscal year fund 

balance with Treasury because of lack of 

reconciliations and unsupported balances 

remaining from its old accounting system. 

2000 Disclaimer Material internal control weaknesses existed in the 

financial statement compilation process and in

procedures for compiling the balances for fund 

balances with Treasury and general property, plant, 

and equipment. Because of these weaknesses, the 

agency was not able to provide timely, sufficient, 

and competent evidential matter to support 

amounts in the financial statements.

2001 Disclaimer
Page 6 GAO-03-538 Forest Service

In the past, we have reported and testified that the Forest Service’s 

(1) unreliable financial data hampers the agency’s and the Congress’ 

decision-making ability, (2) lack of accountability exposes the agency to 

mismanagement and misuse of its assets, and (3) autonomous field 

structure hampers efforts to achieve financial accountability. In January 

1999, due to the longstanding serious accounting and financial reporting 

problems, we designated Forest Service financial management as a highrisk area. We continued to designate financial management at Forest 

Service as high-risk in our 2003 report. Since 1997, the IG and independent 

auditors have continued to report instances of noncompliance with certain 

federal financial accounting and information system requirements and 

internal control weaknesses related to Forest Service financial computer 

systems. 

The Forest Service, a component of USDA, uses and depends on many 

financial management systems and services provided by USDA, including 

the USDA National Finance Center (NFC). Therefore, efforts to improve 

controls over certain financial management computer systems and internal 

controls over accounting processes must be made in cooperation with 

USDA and NFC. For example, the Forest Service uses the USDA 

Foundation Financial Information System as its standard accounting 

system. In addition, NFC maintains and controls entry of many Forest 

Service transactions into FFIS. NFC also reports expenditures and 

collections it processes on the Forest Service’s behalf to Treasury. FFIS 

also depends on and receives data from feeder systems used by the Forest 

Service to record its transactions. Many of the Forest Service’s 

longstanding problems with regard to its accounting and information 

systems are a result of outdated technology of the financial feeder systems 

that transfer accounting data to FFIS. 

Scope and 

Methodology

To address each of our objectives, we analyzed prior IG, consultant, and 

independent auditor reports including the audit report on the Forest 

Service’s fiscal year 2002 financial statements that described several 

financial management weaknesses and their effect on the Forest Service’s 

ability to properly account for assets worth billions of dollars entrusted to 

its care. Further, we examined the Forest Service’s financial management 

policies, procedures, and processes, including completed, ongoing and 

planned activities and related implementation schedules to determine the 

Forest Service’s progress, plans, and milestones for addressing financial 

management problems. We attended a Forest Service Budget and Finance 

planning conference and a financial statement training session conducted 
Page 7 GAO-03-538 Forest Service

by the USDA CFO to gain a further understanding of Forest Service efforts 

to improve its financial statement compilation processes and overcome 

other financial management challenges. We analyzed reported financial 

management problems against the corrective actions taken to determine 

the remaining challenges. Further, we discussed the remaining challenges 

and the status of improvement efforts with officials from USDA and the 

Forest Service Office of the Chief Financial Officer, the USDA IG, and 

independent contractors working for the Forest Service. 

We also visited and interviewed financial management staff at five Forest 

Service field locations. We visited the Intermountain Regional Office, the 

largest of the National Forest regions, because it processes a wide variety 

of financial accounting transactions. We also visited the Southern Regional 

Office, National Forest of North Carolina Supervisor’s Office, Mt. Pisgah 

District Ranger Office, and North Carolina Research Station, each 

representing a different level of the financial management field 

organization. At each location, we interviewed staff and performed walkthroughs to obtain an understanding of accounting processes and 

procedures for certain accounts material to the financial statements, such 

as accounts receivable; property, plant, and equipment; other liabilities; and 

certain collections/revenues, such as timber sales. 

We performed our fieldwork from July 2002 through March 2003 in 

accordance with generally accepted government auditing standards. We 

requested written comments on a draft of this report from the Chief of the 

Forest Service or his designee. The Chief of the Forest Service provided us 

with written comments, which are discussed in the “Agency Comments and 

Our Evaluation” section and reprinted in appendix I.

The Forest Service Has 

Made Significant 

Progress toward 

Achieving Financial 

Accountability 

The Forest Service has made significant progress toward achieving 

financial accountability. For the first time since its initial financial 

statement audit that covered fiscal year 1991, the Forest Service received 

an unqualified or “clean” opinion on its fiscal year 2002 financial 

statements. To achieve this milestone, the Forest Service’s top 

management dedicated considerable resources and focused staff efforts to 

address accounting and reporting deficiencies that had prevented a 

favorable opinion in the past. 

Historically the Forest Service’s financial management systems have not 

generated timely and accurate financial statements for its annual audit. In 

addition, the Forest Service has had long-standing material weaknesses 
Page 8 GAO-03-538 Forest Service

with regard to its two major assets--fund balance with Treasury and 

property, plant, and equipment. In the past, such weaknesses prevented 

the IG from validating these two line items on both the Forest Service and 

the USDA departmentwide financial statements. In fiscal year 2002, the 

Forest Service reorganized the Budget and Finance Deputy Chief/CFO area 

and focused staff efforts to address reporting and accounting deficiencies 

identified in the fiscal year 2001 financial statement audit with the goal that 

the fiscal year 2002 financial statements would pass audit tests. To assist in 

these efforts, the Forest Service hired senior financial management 

officials, consultants and contractors and formed a financial reports team 

and several reconciliation “strike” teams to improve (1) the financial 

statement compilation process and (2) reconciliations of its major 

accounts, including fund balance with Treasury and property, plant, and 

equipment. 

During fiscal year 2002, the financial reports team completed a number of 

efforts to improve the compilation process. For example, the team held a 

series of financial statement workshops for national office and field staff, 

updated the methodology for preparing the fiscal year 2002 financial 

statements, and provided the necessary information to complete the audit, 

such as account analyses and supporting documentation for sample 

transactions selected for testing. 

Six reconciliation strike teams, consisting of contractors with expertise in 

reconciliation procedures and experienced Forest Service staff, performed 

financial statement account reconciliations and reviews to help ensure the 

accuracy and timeliness of recorded accounting data and that subsidiary 

ledgers were reconciled to general ledger accounts. The strike teams 

analyzed account data, identifying accounting errors and documenting 

adjustments to key asset, liability, and budgetary accounts in order to 

achieve accurate account balances. The fund balance with Treasury team 

focused on reconciling material fiscal year 2002 and prior-year cash 

transactions. The property, plant, and equipment reconciliation team 

analyzed transaction data to identify inaccurate records and reconciled the 

general ledger to its supporting detailed records. In addition, the property, 

plant, and equipment strike team, in cooperation with the USDA Office of 

the Chief Financial Officer, the USDA IG, and consultants, worked to 

ensure that property documentation supported property records, 

inventories were complete, and property was valued correctly. 

Further, the property, plant, and equipment reconciliation team, worked 

with USDA on modifications and enhancements to certain property feeder 
Page 9 GAO-03-538 Forest Service

systems. For example, in September 2002, USDA completed an automated 

interface with the Infrastructure Real Property Subsidiary System (INFRA) 

and FFIS. INFRA was revised to improve security by implementing 

controls such as user access restriction and password protection. Also, 

access to key data elements in the Personal Property System (PROP) and 

the Equipment Management Information System (EMIS) was restricted by 

September 2002 in order to address security weaknesses. At the same time, 

certain automated error checks were added to EMIS to help ensure data 

integrity. 

While the primary focus of the reports and reconciliations teams was to 

help attain a clean fiscal year 2002 audit opinion, the teams have been 

institutionalized to work toward sustainable report compilation and 

reconciliation processes. Through these established account 

reconciliations and analyses, the teams are able to identify many of the 

underlying causes of inaccurate data and out of balance conditions. 

Specifically, according to the Forest Service CFO management, many of the 

problems are caused by improper recording of transactions, FFIS system 

problems, faulty interfaced and integrated feeder systems, lack of 

consistent formal policies and procedures, lack of staff training and manual 

accounting processes prone to human error. By understanding the root 

causes, the Forest Service has resolved some of the problems identified. 

For example, the strike teams coordinated with USDA to correct several 

programming errors7

 in FFIS that were causing inappropriate accounting. 

For instance, the fund balance with Treasury team found that fund 

transfers between Forest Service units for equipment usage, which are 

noncash transactions, were incorrectly recorded and reported to Treasury 

as cash collections. As result, the Forest Service’s fund balance account at 

Treasury was being overstated by these amounts. 

During fiscal year 2002, the Forest Service CFO management also issued 

new policies and procedures or revised existing ones to help ensure the 

quality and integrity of the financial data in FFIS and the feeder systems. 

To communicate these changes, the Forest Service CFO issued over 25 

CFO bulletins to accounting staff as the need for accounting and reporting 

controls were identified. For example, the CFO issued several bulletins 

that provided guidance on the proper recording of transactions, such as the 

7

 FFIS is programmed to debit or credit certain general ledger accounts based on identifiers, 

such as job code and transaction identification number and type, used to record the 

accounting event. 
Page 10 GAO-03-538 Forest Service

types of transaction codes to use when entering data into FFIS. The CFO 

also issued bulletins (1) requiring analysis of delinquent bills to determine 

their collectability and (2) to clarify documentation requirements for 

personal and real property transactions. 

Further, Forest Service management continued to emphasize the 

importance of financial accountability to its line managers in the field. In 

April 2002, the Forest Service CFO implemented a set of financial 

performance indicators to monitor progress of the field staff in maintaining 

its accounts, including progress in clearing suspense account8

 items, 

monitoring collection of receivables, and compliance with CFO accounting 

guidance. 

Despite Progress 

Made, Accountability 

Challenges Remain

Achieving financial accountability involves more than obtaining a clean 

audit opinion by producing reliable onetime year-end numbers for financial 

statement purposes. The Forest Service still must overcome many 

challenges to sustain this outcome and to reach the end goal of routinely 

having timely, accurate, and useful financial information. In its December 

2002 report on the Forest Service’s fiscal year 2002 financial statements, 

the auditor, KPMG Peat Marwick LLP (KPMG), continued to identify 

serious material internal control weaknesses and FFMIA noncompliance 

issues primarily related to weaknesses in controls over financial 

management computer systems that could adversely affect the Forest 

Service’s ability to record, process, summarize, and report financial data in 

a timely manner. 

The auditor attributed many of the deficiencies identified to lack of 

adequately trained staff; lack of manual internal control procedures, such 

as supervisory reviews; and poor automated controls, such as user access, 

system edits and system interfaces, within the FFIS and certain feeder 

systems that transfer the data to FFIS. As discussed in table 2, the auditor 

made several recommendations to address these conditions. We support 

these recommendations and are not making any new recommendations in 

these areas. 

8

 Suspense accounts are used to temporarily hold collections and disbursements until 

disposition is determined and they can be properly classified in the applicable receipt or 

expenditure budget accounts. 
Page 11 GAO-03-538 Forest Service

In addition, the IG, Forest Service contractors, and we have reported longstanding problems regarding the Forest Service’s financial management 

systems and its financial management organization. Many of the legacy 

feeder systems that transfer data to FFIS are antiquated technology and 

must be enhanced or replaced. The agency also faces the challenge of 

implementing a financial management field organization that supports 

effective and efficient day-to-day financial operations. Unless the Forest 

Service addresses these issues and moves to sustainable financial 

management processes, it will have to continue to undertake extraordinary, 

costly efforts, outside of its normal business processes, to sustain clean 

audit opinions. Further, management’s ability to routinely obtain reliable 

financial information to effectively manage operations, monitor revenue 

and spending levels, and make informed decisions about future funding 

needs will continue to be hampered. 

Remaining Internal Control 

and FFMIA Compliance 

Deficiencies Need to Be 

Resolved 

Our Standards for Internal Control in the Federal Government9 requires 

that agencies implement a strong internal control system that provides the 

framework for the accomplishment of management objectives, accurate 

financial reporting, and compliance with laws and regulations. It contains 

the specific internal control standards to be followed. These standards 

define internal controls as the policies, procedures, techniques, and 

mechanisms that enforce management’s directives. They help ensure that 

actions are taken to address risks and are an integral part of an entity’s 

accountability for stewardship of government resources. The lack of good 

internal controls puts an agency at risk of mismanagement, waste, fraud, 

and abuse. Further, without strong internal controls, an agency is unable to 

generate the consistent, reliable financial information needed to maintain 

ongoing accountability over its assets. 

In its fiscal year 2002 audit report on the Forest Service’s financial 

statements, the auditor continued to report serious internal control 

weaknesses with regard to the Forest Service’s two major asset accounts--

fund balance with Treasury and property, plant, and equipment. Also, 

KPMG reported material deficiencies related to certain estimated 

9

 See U.S. General Accounting Office, Standards for Internal Control in the Federal 

Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999), which contains the 

internal control standards to be followed by executive agencies in establishing and 

maintaining systems of internal controls as required by 31 U.S.C. Section 3512(c), (d), 

commonly called the Federal Manager’s Financial Integrity Act of 1982.
Page 12 GAO-03-538 Forest Service

liabilities, payroll processes, general controls and certain application 

software computer controls. The following table provides a brief 

description of each of the reported deficiencies and recommendations for 

improvement. 
Page 13 GAO-03-538 Forest Service

Table 2: Forest Service Material Internal Control Weaknesses

Source: GAO analysis.

Financial management 

area Conditions and recommendations reported by auditor

Fund balance with the 

Treasury

While the Forest Service has progressed in fiscal years 2001 and 2002 in reconciling its fund balance with 

Treasury accounts, control deficiencies still exist in its reconciliation processes. The Forest Service had a 

large backlog of unreconciled items that needed to be researched and resolved. In order to bring the Forest 

Service’s fund balance with Treasury accounts into balance with Treasury records as of September 30, 

2002, the Forest Service recorded an adjustment of $107 million. The auditor recommended that the Forest 

Service document its reconciliation processes, establish a point of contact at the National Finance Center to 

assist in the reconciliation process, analyze and determine the proper disposition of its budget and clearing 

accounts, and allocate the necessary resources to complete monthly reconciliations in a timely manner.

Property, plant, and 

equipment

Material deficiencies in the controls related to the accurate recording of property, plant, and equipment 

transactions remain. For example, there were instances in which recorded amounts did not agree with 

supporting documentation and inappropriate payroll expenses were included in property values instead of 

being recorded as expenses, resulting in an overstatement of property and an understatement of expenses. 

Further, the Forest Service did not have effective controls over the initial recording of acquisition costs, inservice date, and useful life of property items. Because the Forest Service did not require reviews of data 

input for property transactions by a supervisor, another independent person or by system checks within 

property systems, certain property items were not recorded properly. The auditors recommended that the 

Forest Service train personnel on accurate transaction recording, require supervisory review of data input of 

property transactions, and design and implement a control methodology that verifies recording of 

acquisition costs, in-service date, and useful life and other critical elements, to ensure proper depreciation 

of capital assets. 

Accrued liabilities The Forest Service’s proposed methodology for estimating certain liabilities, such as grants, was not 

accurate and did not substantially support the unpaid amount of services that had been delivered as of 

year-end. In addition, the proposed methodology did not consider payments to states, which are recorded 

as liabilities as of September 30. If the Forest Service had used its proposed methodology, both its accrued 

liabilities and associated expenses would have been understated for fiscal year 2002. As a result, sampling 

methodologies were used to project the year-end balance. The auditor recommended that the Forest 

Service develop a new methodology for estimating liabilities and maintain the supporting documentation 

used to determine the estimate.

Payroll process Serious automated control deficiencies existed with the Forest Service’s payroll time card entry system. For 

example, it allowed the Forest Service users to submit their time sheets for approval to an employee that 

was not the designated supervisor. In some locations, the employee could send the time sheet to 

him/herself for approval. In addition, deficiencies in manual controls over the payroll process existed, such 

as missing employee and/or supervisor signatures. The auditor recommended that the Forest Service 

implement controls to ensure that employees’ supervisors appropriately review and approve their 

subordinates’ time sheets, reinforce the requirement for time sheets to be signed by both the employee and 

supervisor, and reconcile and biweekly certify its payroll registers to its personnel listing.

General and software 

application controls

The Forest Service had material deficiencies in its general controlsa environment. For example, controls for 

determining the trustworthiness of personnel, such as background checks, and limiting access to 

information systems needed improvement. Software application controlsb related to procurement, and real 

and personal property feeder systems also needed improvement. Without sufficient application controls, the 

Forest Service is exposed to the risk of its property records being corrupted, lost, or altered, and errors and 

omissions not being prevented, detected, and corrected. The auditor recommended several actions for 

improving controls over user access, system interfaces, system edits, separation of duties, and data 

accuracy and completeness.c
Page 14 GAO-03-538 Forest Service

a

General controls include the structure, policies, and procedures that apply to the agency’s overall 

computer operations, for example: security management programs, access control, application 

software development and change, system software control, segregation of duties, and service 

continuity. 

b

Application controls covers the structure, policies, and procedures designed to help ensure the 

accuracy, completeness, authorization and validity of all transactions during the application process. 

Application controls play a crucial role in the auditability of these feeder systems.

c

Due to the sensitive nature of the issues identified, the auditor provided the Forest Service with a 

separate limited-distribution report that contains the detailed findings and specific recommendations.

Further the auditor reported that the Forest Service’s systems did not 

substantially comply with the three requirements of the FFMIA--federal 

financial management systems requirements, applicable federal accounting 

standards, and the U.S. Government Standard General Ledger at the 

transaction level. One example of noncompliance with federal financial 

management systems requirements was that the Forest Service did not 

have required certification and accreditations of security controls 

performed timely on its procurement and property systems. Further, the 

Forest Service did not record revenue for certain collections, such as map 

sales and camp site reservation fees, when they were collected, as required 

by federal accounting standards.10 Instead, collections and fees were 

recorded in a suspense account and revenue was recognized when the 

money was used for other operational needs instead of when the revenue 

was actually earned. This practice could result in revenues and related 

costs being misstated on the Forest Service’s financial reports. 

Financial Management 

Systems Remain an 

Obstacle to Achieving 

Sustainable Accountability 

Weaknesses in the Forest Service’s financial management systems continue 

to hamper its ability to achieve sustainable financial transaction processing 

and reporting. In the past, the IG and we have reported long-standing 

problems with the feeder systems that process and transfer financial 

information into FFIS. Several of the feeder systems that generate data 

used to support the financial statements predate FFIS and have antiquated 

technology. Because significant differences existed between the data in the 

FFIS general ledger and its supporting detail in the feeder systems, 

financial statements produced by FFIS could not be relied upon. For 

example, the Forest Service uses several feeder systems to support its 

multibillion dollar property, plant, and equipment line item in its financial 

statements, including (1) Infrastructure Real Property Subsidiary System 

(INFRA), (2) Personal Property System (PROP), and (3) Equipment 

10 Statement of Federal Financial Accounting Standard No. 7, Accounting for Revenue and 

Other Financing Sources, requires collections be recorded as revenue at the point of sale.
Page 15 GAO-03-538 Forest Service

Management Information Systems (EMIS). These feeder systems also rely, 

in some cases, on data transferred from other lower level (subsidiary) 

feeder systems. In prior years, material internal control weaknesses in the 

compilation of the property, plant, and equipment balance contributed to a 

disclaimer of an opinion on the Forest Service’s financial statements.

In preparation for the fiscal year 2002 audit, the Forest Service engaged a 

consultant to perform extensive procedures to arrive at an opening 

(October 1, 2001) property, plant, and equipment balance using statistical 

sampling of property records. The existing data was examined for 

erroneous and duplicate records through a variety of means, including 

checks for mathematical accuracy and comparisons with physical records 

and inventories. During this process, the consultant discovered that the 

lack of and/or faulty interfaces between these feeder systems and FFIS 

resulted in erroneous postings to the property, plant, and equipment 

account. Although the Forest Service has made certain improvements to 

its property feeder systems during fiscal year 2002, more needs to be done 

to improve the quality and integrity of financial data in FFIS and the feeder 

systems. 

In its fiscal year 2002 report on Forest Service’s Information Technology,11

the auditor reported certain weaknesses in internal controls related to the 

feeder systems. For example, the auditor found duplicate and dropped 

records after data was transferred between PROP, the Purchase Order 

Normal Tracking and Inventory System, and the Purchase Order System. 

The auditor also reported that system data validation and error detection 

controls were ineffective in EMIS. Further, the auditor reported 

weaknesses related to the Automated Timber Sales Accounting System 

(ASTA). Specifically, there were no controls built into ASTA to prevent 

duplicate transactions from being recorded. As a result, field unit staff had 

to manually review the data to identify any transactions that were 

erroneously entered more than once. 

We visited and interviewed financial management staff at five Forest 

Service field offices about the accounting processes and systems used to 

obtain a “field” perspective on financial management problems and the 

11 As part of the fiscal year 2002 financial statement audit of Forest Service’s financial 

statements, the auditor conducted a review of the Forest Service’s information and 

technology general and application controls. Due to the sensitive nature of the findings, the 

auditors issued a separate restricted report to Forest Service Management. 
Page 16 GAO-03-538 Forest Service

status of improvement efforts. At the field offices we visited, the financial 

management staff told us that system issues affect their operations. For 

example, one field office uses the Timber Information Management (TIM) 

system, an upfront system used to record the initial information and 

produce bills for timber sales and wood product permits. Since the system 

does not interface with FFIS, users have to manually enter the timber sale 

deposits and permit sales into FFIS. Lack of an automated interface 

between the systems increases workload as well as the risk of input errors. 

Problems with the financial management systems continue to hamper the 

Forest Service’s ability to move to sustainable processes. Until the Forest 

Service resolves its systems problems, the financial statements produced 

by FFIS cannot be relied upon without significant manual intervention to 

reconcile differences between FFIS and the feeder-systems. Resolving 

these differences consumes personnel and other resources and limits the 

Forest Service’s ability to have reliable financial information on an ongoing 

basis for day-to-day management. 

An Efficient and 

Effective Financial 

Management 

Organization Is Key to 

Achieving Financial 

Accountability 

Among the other challenges that the Forest Service faces is establishing an 

efficient and effective organization to accomplish financial management 

activities. The highly decentralized organizational structure of the Forest 

Service’s financial management presents significant challenges in achieving 

financial accountability. Under the current organization, financial activities 

are performed and recorded at the Forest Service national office, nine 

regional forest offices, six research stations and USDA NFC as well as at 

hundreds of forest and district ranger offices where many transactions 

originate. The decentralized financial management organization presents a 

significant challenge because the Forest Service’s national office financial 

management team is tasked with ensuring that staff at hundreds of field 

locations are routinely processing accounting transactions accurately and 

consistently, in accordance with management directives. 

Since February 1998, we have reported that the Forest Service’s 

autonomous and decentralized organizational structure could hinder 

management’s ability to achieve financial accountability. In March 1998, an 

independent contractor, hired by the Forest Service to assess the agency’s 

financial management and organization, also raised the issue of the 

agency’s autonomous organizational structure. The contractor reported 

that the Forest Service lacked a consistent structure for financial 

management practices and that each field unit was operating 

independently. In response to these concerns, the Forest Service 
Page 17 GAO-03-538 Forest Service

conducted a Financial Management Field Operation Assessment (FOA), 

which was completed in March 2001. As part of the assessment, the FOA 

project team evaluated the current level of accountability for financial 

management and made six recommendations to strengthen lines of 

responsibility and accountability. Specifically, the team recommended that 

the Forest Service (1) ensure that appropriate delegation of authority is in 

place, (2) finalize performance measures for financial management, 

(3) appoint field directors as responsible financial accountability officers 

for their respective units, (4) appoint deputy chiefs in the national office as 

responsible financial accountability officers for their units, (5) provide 

training and develop core competencies, and (6) establish policies and 

guidelines addressing the development, implementation, and financing 

arrangements for shared services agreements related to financial activities. 

The Forest Service has taken several actions to address the FOA 

recommendations related to the autonomous field structure to improve 

accountability for financial management in the field and throughout the 

organization. For example, the agency restructured its national office 

financial management team to create functional lines of accountability for 

Budget and Finance management, under the leadership of the deputy CFO, 

who reports directly to the Chief of the Forest Service. The Forest Service 

also appointed field directors (regional foresters, research station 

directors, etc.) to serve as the responsible financial accountability officers 

for their units. Further, beginning in 2001, the Forest Service began to 

restructure its regional offices to mirror the national office’s financial 

management structure. Currently, six of the nine regional offices have 

consolidated budget and finance functions, under the direction of a 

financial director who is responsible for financial management activities in 

the region. Another regional office is in the process of restructuring its 

financial management organization. The two remaining regional offices 

have no definite plans to change their financial management structure. 

While this is a good first step in resolving the autonomy of the Forest 

Service field offices, the Forest Service has not determined how best to 

structure the regions and related suboffices to create an efficient and 

effective organization to accomplish financial management activities. 

At the five field offices we visited, the financial management field staff told 

us that, although progress is being made, more needs to be done to move to 

sustainable financial transaction processing and reporting in the field. For 

example, staff reported that they need more training on FFIS and updated 

policy and procedure manuals. They also stated that the national office 

needs to improve communication with the field to obtain better 
Page 18 GAO-03-538 Forest Service

understanding of field business processes and to solicit more input from 

the field staff in developing accounting and reporting policies and 

procedures. 

The Forest Service CFO management acknowledges that creating an 

effective and efficient organizational structure is critical to establishing 

sustainable processes and addressing many of the financial management 

issues and challenges that Forest Service faces, including 

• improving internal controls over its accounting functions, such as 

adequate supervisory review, and over other areas of weakness noted by 

the auditors; 

• providing training programs and on the job training opportunities for 

accounting field staff; and

• providing adequate oversight to ensure accurate and consistent 

processing of accounting transactions. 

In 1999, we designated financial management at the Forest Service to be 

high risk because of serious financial and accounting weaknesses that had 

been identified and not corrected, in the agency’s financial statements for a 

number of years. We continued to designate financial management at 

Forest Service as high risk in our 2003 report. In order to be removed from 

the high-risk list, the Forest Service, at a minimum, will need to 

demonstrate sustained accountability over its assets on an ongoing basis.

Corrective Actions Are 

Underway or Planned 

to Resolve Remaining 

Problems

While the conditions discussed above present a major challenge to 

achieving financial accountability, the Forest Service has several efforts 

underway or planned, that if implemented, should help to resolve many of 

its financial management problems and to move toward sustainable 

financial management business processes. Such efforts are designed to 

address internal control and noncompliance issues identified in the fiscal 

year 2002 audit report as well as address feeder system and organizational 

issues. To assist in its efforts, the Forest Service CFO management is 

developing a financial management strategic plan intended to provide 

direction for continued improvement efforts and a mechanism to monitor 

and evaluate performance. To be effective, this plan should be 

comprehensive--providing a detailed road map of the steps, resources, and 

time frames for achieving the end goal of sustainable financial 

management.
Page 19 GAO-03-538 Forest Service

To address the fiscal year 2002 internal control and FFMIA audit findings, 

the fund balance with Treasury reconciliation team has documented its 

reconciliation procedures and is working with NFC to develop a fund 

balance with Treasury reconciliation process to assist in timely research 

and resolution of reconciling items related to fund balance with Treasury 

activities that are processed by NFC on the Forest Service’s behalf. 

According to Forest Service CFO management, the reconciliation process 

should be in place by August 2003. The property, plant, and equipment 

reconciliation team has started a project to update existing policies and 

procedures and plans to issue revised property, plant, and equipment 

manuals during fiscal year 2003. The property, plant, and equipment team 

is also continuing to analyze property data files and reconcile data in 

property feeder systems to data in FFIS monthly. In January 2003, CFO 

management developed and implemented an automated system to track 

and monitor the status of issues identified by the reconciliation teams to 

help ensure timely resolution. They also hired a training coordinator to 

develop standardized training programs and two additional staff to update 

all financial policy and procedure manuals. 

The Forest Service is also continuing to work with USDA to enhance or 

replace the feeder systems in an effort to resolve data transfer problems 

between feeder systems and FFIS. For example, it is currently exploring an 

option for replacing the Forest Service’s three property feeder systems with 

a single USDA-wide property system. A decision on the system will be 

made by December 2003. The Forest Service expects to begin 

implementing the system in fiscal year 2004. Also, the Forest Service is 

scheduled to pilot the Integrated Acquisition System (IAS) by fiscal year 

2004. IAS is a procurement system that will replace the current purchase 

order system and will link to FFIS. IAS will support three major 

procurement processes: requisitioning, purchasing, and contracting. 

In addition to the efforts mentioned above, the Forest Service is evaluating 

options for a more efficient financial management organization. In 

November 2002, it formed the Financial Management Efficiency Team to 

assess financial management roles and responsibilities and evaluate 

models for an efficient financial management organization. In January 

2003, the team submitted a draft proposal for financial management roles 

and responsibilities throughout the organization and is scheduled to submit 

its recommendation for a financial management organization in June 2003. 

According to CFO management, the team is expected to make a detailed 

recommendation for a consolidated accounting and fund control 
Page 20 GAO-03-538 Forest Service

organization either at each regional office or within multiregional shared 

services centers located at selected regional offices. 

The Forest Service has several strategic plans that include many of the 

financial management improvement efforts. For example, the Forest 

Service prepares agencywide strategic plans and annual performance plans 

as required by the Government Performance and Results Act. Also, the 

Forest Service’s Budget and Finance Deputy Chief units prepare annual 

project plans. However, the agencywide strategic and performance plans 

are broad in scope and focus on high-level goals and objectives. The 

annual project plans are narrowly focused on specific short-term projects. 

These plans are not an adequate substitute for a comprehensive financial 

management implementation strategy because they do not integrate all the 

improvement efforts and do not include the critical elements needed to 

effectively manage an overall strategy that will succeed in achieving and 

sustaining financial accountability. 

Forest Service CFO management is developing a financial management 

strategic plan intended to provide direction for continued improvement 

efforts and a mechanism to monitor and evaluate performance. This plan is 

designed as a working tool, evolving over 3 to 5 years, which will be 

reviewed and updated annually. In January 2003, the plan was introduced 

at the Forest Service’s Budget and Finance planning conference. 

According to Forest Service CFO management the initial plan will be 

completed by June 30, 2003. 

To be effective, the Forest Service’s plan should combine all the financial 

management improvement efforts into an overall comprehensive financial 

management implementation strategy. Such a strategy is a critical tool for 

the Forest Service, serving as a road map to help in resolving financial 

management problems. An effective plan includes long-term and shortterm plans with clearly defined goals and objectives and specific corrective 

actions, target dates, and resources necessary to implement those actions. 

A comprehensive plan also prioritizes projects and assigns accountability 

by identifying responsible offices and staff responsible for carrying out the 

corrective actions. Without such a plan, it will be difficult to fix 

accountability for its many efforts and effectively monitor progress against 

its end goals.

Conclusion The Forest Service has demonstrated strong leadership and commitment to 

reach its goal of obtaining an unqualified opinion on its fiscal year 2002 
Page 21 GAO-03-538 Forest Service

financial statements. At the same time, many of the financial management 

improvement efforts implemented to date are outside of normal business 

processes and focus mainly on obtaining reliable year-end numbers for 

financial statement purposes. The Forest Service still must overcome 

several major challenges before it can move to sustainable processes that 

can routinely provide accurate, relevant, and timely information to support 

program management and accountability. The Forest Service is at a critical 

juncture. If the Forest Service is to achieve and sustain financial 

accountability, it must fundamentally improve its underlying internal 

controls, including financial management computer system controls, and 

financial management operations. The Forest Service has various efforts 

underway or planned, that if successfully carried through, will be important 

steps toward addressing the financial management challenges it faces. 

However, to date, several problems identified by the IG, KPMG, and us 

remain. Some of Forest Service problems are deep-seated and therefore 

will require sustained leadership and commitment of significant resources 

and time to resolve. The number and significance of the issues still facing 

the Forest Service emphasizes the need for a comprehensive strategy to 

manage the various initiatives underway or planned. 

Recommendations for 

Executive Action

To help ensure sustained commitment and timely implementation of 

financial management improvement efforts, we recommend that the Chief 

of the Forest Service direct the Chief Financial Officer to develop a 

comprehensive financial management strategic plan that 

• clearly defines long-term and short-term financial management goals 

and objectives; 

• specifies corrective actions to address financial management 

challenges, including internal control weaknesses, FFMIA compliance 

deficiencies, system problems and organization issues; 

• includes target dates and resources necessary to implement corrective 

actions;

• identifies the responsible parties for carrying out corrective actions; and 

• prioritizes and links the various improvement initiatives underway and 

planned, including USDA financial management systems enhancement 

efforts. 
Page 22 GAO-03-538 Forest Service

Agency Comments and 

Our Evaluation

In written comments on a draft of this report, the Forest Service concurred 

with our recommendations to develop a comprehensive financial 

management strategic plan that defines financial management goals, 

specifies corrective actions, identifies target dates and resources needed, 

identifies responsible parties, prioritizes and links improvement initiatives, 

and provides details on financial management systems enhancements. 

Forest Service’s response (see appendix I) stated that preparation of a 

financial management strategic plan is in process.

As agreed with your office, unless you publicly announce its contents 

earlier, we will not distribute this report for 30 days. At that time, copies of 

this report will be sent to the congressional committees with jurisdiction 

over the Forest Service and its activities; the Secretary of Agriculture; and 

the Director of the Office of Management and Budget. We will also make 

copies available to others upon request. In addition, the report will be 

available at no charge on the GAO web site at http://www.gao.gov. 

If you or your staff have any questions please contact me at (202) 512-6906. 

Key contributors to this report were Alana Stanfield, Suzanne Murphy, 

Martin Eble, and Lisa Willett.

McCoy Williams

Director, Financial Management

and Assurance
Page 23 GAO-03-538 Forest Service

Appendix I

Comments from the Forest Service AAppenednxidexiIs

(190066)
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